Critical Updates on KCP&L Program in Missouri

KCP&L scales back energy conservation incentives

Kansas City withdrawn from proposal designed to encourage efficiency and eventually save on power plant needs.

By STEVE EVERLY

The Kansas City Star

Kansas City Power & Light’s much-heralded proposal to help its customers use less electricity is in disarray, just two months after it was announced.

In December, KCP&L asked state regulators to approve plans that would lock in conservation incentives for its nearly 600,000 Missouri customers. Now the utility is withdrawing the plan for its 270,000 customers in the Kansas City area.

Industrial customers and regulatory staff members also are criticizing the remaining plan for KCP&L’s 309,000 customers in St. Joseph and other areas outside Kansas City.

KCP&L proposed the plan because by helping consumers save energy, it might be able to avoid having to build another large, costly power plant in a few years.

The Midwest hasn’t been hospitable territory for energy efficiency, because of its relatively cheap electricity prices. The Natural Resources Defense Council, which helped KCP&L draw up its plan, hoped the utility would help crack that reputation.

Under the KCP&L proposal, customers would be encouraged to conserve energy by getting rebates to buy energy-efficient equipment and lighting. Customers would also get rebates to make sure inefficient air-conditioners and refrigerators are disposed properly and not salvaged.

The utility also would tell residential customers what they could do specifically to reduce consumption, and how their electric use compared with that in similarly sized homes.

To pay for the program’s upfront costs, KCP&L was asking regulators to let it raise electricity rates. It also wanted to keep some of the savings, in part to compensate it for lower power sales, and share the rest with ratepayers, so that eventually both KCP&L and its customers would come out ahead.

But KCP&L, in a new filing with the Missouri Public Service Commission, said the conservation plans would have raised rates up to 4 percent, which it could not justify at this time for its Kansas City customers.

Electricity use, held back by the recession, still hasn’t recovered, the utility said, so it has plenty of generating capacity to meet demand for some time. Plummeting natural-gas prices also played a role in the decision, making the utility’s gas-fired electricity plants cheap to operate.

“We have enough capacity to more than meet our load,” said Chuck Caisley, a KCP&L spokesman.

KCP&L could reconsider in a year or two, he said, and again seek approval to bring those customers into the energy conservation program.

The situation is different for KCP&L’s customers in its St. Joseph Light & Power and Missouri Public Service areas, which it acquired over the years when it bought other utilities.

Under state regulations, those territories still operate separately from the rest of KCP&L and have to provide their own power, and they don’t have a surplus. The utility said it still made sense to help them conserve, so KCP&L didn’t have to find as much additional power for them.

But the energy efficiency program for them also appears uncertain, given criticism by state regulatory staffers and others.

One person taking issue with that program is Lewis Mills Jr., the head of the Missouri Office of Public Counsel, the state agency that represents consumers on utility issues. Mills said one problem was how KCP&L was proposing to count energy savings, which would be used to calculate profits and other reimbursements.

KCP&L’s scaled-back plan surprised many, including environmental groups who had hailed the announcement in December as a breakthrough. Stanfield of the Natural Resources Defense Council questioned whether electricity rates actually would have had to climb 4 percent.

Kevin Gunn, the chairman of the Public Service Commission, said whatever happened in the KCP&L case, he believed energy conservation had a future in the state.

“I am a big proponent of energy efficiency,” he said.

Regulators are expected to make a decision on the remaining efficiency program by June.

In the past, utilities have relied on selling more electricity to increase profits, and on building more power plants as demand rose and being able to raise rates to cover their costs. Under that business and regulatory model, utilities didn’t have much incentive to encourage conservation, though KCP&L has had some pilot conservation programs.

But in 2009, state legislators passed the Missouri Energy Efficiency Investment Act, which called for treating investments in curbing consumption in the same way as investments to deliver electricity. It took a couple of years to work out the regulations to put the law into effect, including how to measure energy savings.

KCP&L said it would allocate $20 million a year to the scaled-down program, which would be expected to eventually save the utility much more than that. The rule of thumb is that it costs one-fifth as much to eliminate the need for a kilowatt of electricity as it does to produce that much electricity. So the savings could amount to hundreds of millions of dollars over a few years.

KCP&L has said 60 percent of its eventual cost savings would be passed on to consumers. The rest of the savings would stay with KCP&L, to cover costs for the conservation and efficiency efforts, and offset revenue lost from selling less electricity. The plan also envisioned cutting overall electricity use initially by 0.5 percent a year. If it met the goal, KCP&L would get a performance bonus.

When KCP&L filed its initial plan it was expected to have fairly smooth sailing, since months had been spent hammering out the rules utilities would have to follow.

But the Public Service Commission staff, in the latest filings, said KCP&L in several instances was seeking to not follow those rules. One example, the staff said, was using projected energy savings, instead of actual savings, in calculating the financial benefits.

Caisley, the KCP&L spokesman, defended that part of the plan, saying the projections came from five years of pilot programs.

Large industrial users also objected to KCP&L’s new filing. Part of the agreement has been that businesses that already have substantial investments in conservation measures could opt out of paying the higher initial electricity rates. And another new program would pay them extra if they allowed their power to be interrupted on days of peak demand.

But the large users now say that KCP&L wants to bar users from the power-interruption payments if they have opted out of paying the higher rates.

“Everyone is in favor of energy efficiency, but the question is how to do it effectively,” said Stu Conrad, an attorney who represents some of the industrial users.

Caisley also defended that part of the proposal, saying industrial users would still get lower electric rates if they allowed their power to be interrupted. He noted the program that would instead give payments to large customers was a new initiative, and that the utility thought it would be unfair to let customers into that program if they had opted out of the overall conservation program and its rates.